Why US Steel Short Sellers Might Lose on Their Bets

Things could turn around for the US steel sector, with mills pushing for price hikes. Earnings results this week could also surprise positively.

Mohit Oberoi, CFA - Author

Oct. 28 2019, Updated 2:18 p.m. ET

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  • US steel stocks have been weak this year. Their slide has not surprising, given metal prices’ sharp fall.
  • However, things could turn around for the sector, with mills pushing for price hikes. Earnings results this week could also surprise positively. Could short sellers lose on their bets?
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U.S. Steel Corporation

The metals and mining sector has been weak this year. U.S. Steel Corporation (X) stock has been especially pressured, losing 35.2% YTD (year-to-date). Meanwhile, others have been better off. AK Steel (AKS) and Nucor (NUE) have gained 13.8% and 6.2% YTD, while Cleveland-Cliffs (CLF) has lost 4.2%. U.S. Steel Corporation stock has also been hurt by company-specific issues. It is spending aggressively on revamping plants, which could burn cash between now and 2021.

US steel prices

Whereas the industry has been a bears’ paradise over the last year, bulls might have the upper hand in the short term. The metal and mining industry’s fortunes are intertwined with its underlying commodity prices. Steel prices have fallen to multiyear lows, impacting steel stocks.

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Things might be bottoming out

As we’ve noted previously, steel prices look close to their bottom. Furthermore, domestic mills are pushing for price hikes, which could slow steel prices’ deterioration. We could see more price hikes in the near term. Given the low supply chain inventories and international-domestic price spreads, the price hikes might hold ground.

Watch for earnings results

Nucor’s and Cleveland-Cliffs’ earnings were better than expected. This week, both AKS and X are set to release their third-quarter earnings. Given the sector’s pessimism, we could see some positive traction if these companies’ results are impressive. Additionally, we could see some positive commentary on price outlook during the company’s earnings calls. Progress in US-China trade talks could also create some momentum in the metals and mining industry. In my view, X stock might give bears a hard time this week.

We’ll soon follow up with a pre-earnings release analysis for X. In the meantime, read Trump Steel Tariffs: Will History Repeat Itself?


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